GNC to close 200 stores; looks forward to $300 million infusion from Harbin

By Hank Schultz contact

- Last updated on GMT

GNC to close 200 stores; looks forward to $300 million infusion from Harbin
Vitamin retailing giant GNC has announced plans to close as many as 200 stores this year as it prepares for a major investment from Chinese company Harbin Pharmaceutical.

The dietary supplements retailing giant has struggled with recent earnings performance. One particular sore spot has been poor sales at some of its outlets located in failing suburban malls. As of March 2018 the company had 3,385 corporate stores in the US and Canada, 1,083 domestic franchise locations, 2,428 Rite Aid franchise store-within-a-store locations and 2,009 international locations. In addition to the store closings, the company said it planned to open “a limited amount”​ of new stores in 2018.

Harbin and GNC agreed in principle to a $300 million investment earlier in February. Harbin will become the company’s biggest shareholder, and the two firms will form a joint venture to market GNC prodcuts in China. At the same time the company announced a plan to restructure its outstanding debt.

Harbin investment puts teeth in Asia strategy

GNC CEO Ken Martindale announced during a recent earnings call that Harbin shareholders had approved the deal. The agreement has hit a minor snag in that GNC could not gather enough returned proxy statements from its own shareholders to approve the deal. Another company meeting on the subject has been scheduled for May 9, but early returns seem to assure the measure’s passage.

“We adjourned our meeting to allow additional time to solicit proxies and to obtain a quorum for the meeting. We are encouraged by the show of support from our shareholders who have already voted. As we indicated in our press release, over 92% of the votes received as of yesterday's adjourned meeting were in favor of the share issuance. Unfortunately, given the dispersed nature of our shareholder base, we did not receive enough total votes for a quorum,” ​Martindale said during an earnings call with analysts.

“We continue to believe that the Harbin investment is the best path forward for GNC, and expect that we will obtain the votes necessary to establish a quorum and approve the transaction,” ​he said.

Martindale said growth in international markets continues to be a key strategic priority for the company. GNC has signed a new franchisee that will expand the company’s footprint in India, and will enter the Australian market in 2018 as well.

The full text of the call can be viewed on the site seekingalpha.com​.

Earnings details

GNC is in the end stages of stepping away from the costly promotion-heavy sales strategy pursued for a number of years under former CEO Joe Fortunato, who was ousted in 2014. The company ended its Gold Card Member Pricing program in the US in the first quarter, which depressed revenues by $23 million.

GNC reported consolidated revenue of $607.5 million in the first quarter of 2018, compared with consolidated revenue of $654.9 million in the first quarter of 2017. The sale of Lucky Vitamin on September 2017, also resulted in a $22.7 million reduction to revenue.

Same store sales increased 0.5% in domestic company-owned stores (including GNC.com) in the first quarter of 2018. In domestic franchise locations, same store sales decreased 1.9%.

For the first quarter of 2018, the Company reported net income of $6.2 million compared with $24.7 million in the prior year quarter.

GNC’s sales have been on a steady decline over the past several years, and the stock price has declined as well. In 2014 GNC’s shares were trading at more than $60; the share price stands at about $3.85 today.

Related topics: Markets, The changing retail landscape

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